Gross yield: a quick first benchmark
Gross yield relates the annual rent to the purchase price. It takes seconds to compute and helps rule out clearly overpriced offers before going further.
Gross yield (%) = annual rent ÷ purchase price × 100, where annual rent = monthly rent × 12.
Its weakness: it ignores everything that costs money between the purchase and the rent collected. Two properties with the same gross yield can earn very differently once costs are deducted.
Net yield: what the property really earns
Net yield compares the income you actually keep with the total investment, acquisition costs and works included. It is the figure to use to compare two properties, or a property and another investment.
Net yield (%) = (rent collected − non-recoverable charges − property tax − management fees) ÷ total investment × 100.
What to include
- Upfront : the purchase price, acquisition costs and any refurbishment works.
- Vacant months : a property is never let twelve months out of twelve: deduct the likely vacancy from annual rent.
- Non-recoverable charges : maintenance, insurance and charges the tenant does not reimburse.
- Property tax and management fees : whether paid to an agency or valued at the time you spend on it.
A step-by-step example
The amounts below are round figures chosen for the demonstration, not market data. An apartment bought for FCFA 30,000,000, FCFA 33,000,000 including costs and works, let at FCFA 250,000 per month.
| Step | Calculation | Result |
|---|---|---|
| Annual rent | 250,000 × 12 | FCFA 3,000,000 |
| Gross yield | 3,000,000 ÷ 30,000,000 | 10% |
| Rent collected (1 vacant month) | 250,000 × 11 | FCFA 2,750,000 |
| Charges, tax and management | assumed value | FCFA 450,000 |
| Annual net income | 2,750,000 − 450,000 | FCFA 2,300,000 |
| Net yield | 2,300,000 ÷ 33,000,000 | about 7% |
The same property drops from 10% to about 7%: that is the gap gross yield hides. ImmoTopia's rental yield calculator runs this calculation with your own figures, free and with no sign-up.
Five mistakes that skew the calculation
- Comparing a gross yield with a net yield.
- Leaving acquisition costs and works out of the investment.
- Assuming the property is let all year, with no vacancy.
- Counting the asking rent rather than the rent actually collected.
- Not chasing late payments: late rent is yield lost. The method for chasing unpaid rent explains how.
Frequently asked questions
What is the difference between gross and net yield?
Gross yield relates annual rent to the purchase price. Net yield deducts charges, tax and management fees, and relates the remaining income to the total investment, acquisition costs and works included.
Should acquisition costs be included?
Yes for net yield: they are part of what you actually invested. Ignoring them gives a flattering but wrong yield.
Does the calculation account for a loan?
No, yield is calculated before financing. To measure your real monthly effort, subtract the loan repayments from the net income afterwards.
Go further
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